Monitoring PEPs
Closing Banks to the Corrupt: The Role of Due Diligence and PEPS
This article is a short summary of the policy brief with the above title.
The document points out that grand corruption usually involves prominent figures in the society who hold positions and entrusted powers who also abuse those powers for his own gain.
Through grand corruption investment climate in a country will be affected and “they distort the delivery of social services and sap money from public coffers for key basic services.”
The policy brief asserts that the one most effective method to preventing grand corruption is “ensuring that the corrupt do not have a safe haven to hide their ill-gotten funds.”
In order to prevent this to happen, banks and other channels of finances should identify and flag prospective investors or possible clients as “Politically Exposed Persons” or PEPs. These are those who were holding or are still in public institutions.
Banks and other financial intermediaries, together with their lawyers and accountants “must do their part and comply with their due diligence duties on PEPs.” The prevention method can be strongly implemented when financial regulatory authorities do something and stop banks from welcoming corrupt officials’ money.
Some Issues
Who is a PEP?
The following are some basic descriptions of who the PEPs (or “politically exposed persons”) are:
- They are people with high level positions in public service
- They senior politicians, extending from the person to his/her family members and close associates
Possible Solutions
Some financial institutions have already existing measures to combat such money laundering activities by PEPs.
When identified, financial institutions must conduct due diligence actions, scrutinize their funds, monitor transactions, and even the relationships between clients and financial institutions, among other methods.
Loopholes
Many banks continue to be proven as haven for PEPs, a result from weak enforcement of anti-money laundering and attitude towards due diligence on PEPs.
Identification of PEPs is complex; high-risk categories including political party officials, diplomats and similar groups of officials are not included in the definition of PEPs
“enhanced due diligence” (EDD) only automatically applies to foreign PEPs
Monitoring PEPs
When the PEPs have been identified, banks and similar institutions will then implement the EDD requirements. Financial institutions and business bodies must also obtain relevant data about PEPS’s “nature and purpose of the business.”
Documented information should be obtained both from the client and available public registers, such as properties and asset disclosure.
Monitoring PEPs and former PEPs should be a continuous process by tracking transactions that may reveal anomalous patterns inconsistent with the client’s profile. In addition, non-PEPs who are suspected with high-risks of becoming corrupt should also be monitored and checked to see whether they become PEP themselves.
Recommendations
1. International bodies must “Align and broaden definitions of PEPs and eliminate distinction between foreign and domestic PEPs.”
2. Governments must “Strengthen and enforce their PEP and AML regulations” both nationally and internationally.
3. financial institutions must: adopt risk management procedures, require senior management to monitor PEPs, and implement Enhanced Due Diligence measures.
Please, read more details regarding Monitoring PEPs document by clicking the link below:
Closing Banks to the Corrupt